TAXES CONSOLIDATION ACT, 1997

• (5)
• (a) Subject to paragraph (b), the amount of a loss incurred in a trade in an accounting period shall be computed for the purposes of this section in the like manner as trading income from the trade in that period would have been computed.

• (b) Where expenses of management of an assurance company (within the meaning of section 706) are deductible under section 83 from the profits of the accounting period in which they were incurred, or of any accounting period subsequent to that period, those expenses shall not be taken into account in computing a loss incurred in a trade of the company.

• (6) For the purposes of this section, “trading income”, in relation to any trade, means the income which is to be, or would be, included in respect of the trade in the total profits of the company; but where in an accounting period a company incurs a loss in a trade in respect of which it is within the charge to corporation tax under Case I or III of Schedule D, and in any later accounting period to which the loss or any part of the loss is carried forward under subsection (1) relief in respect of the loss or that part of the loss cannot be given, or cannot wholly be given, because the amount of the trading income of the trade is insufficient, any interest or dividends on investments which would be taken into account as trading receipts in computing that trading income but for the fact that they have been subjected to tax under other provisions shall be treated for the purposes of subsection (1) as if they were trading income of the trade.

• (7) Where in an accounting period the charges on income paid by a company—

• (a) exceed the amount of the profits against which they are deductible, and

• (b) include payments made wholly and exclusively for the purposes of a trade carried on by the company,

then, up to the amount of that excess or of those payments, whichever is the less, the charges on income so paid shall in computing a loss for the purposes of subsection (1) be deductible as if they were trading expenses of the trade.

• (8) In this section, references to a company carrying on a trade are references to the company carrying on the trade so as to be within the charge to corporation tax in respect of the trade.

• (9) A claim under subsection (2) shall be made within 2 years from the end of the accounting period in which the loss is incurred.

397 Relief for terminal loss in a trade. [CTA76 s18(1) to (3)]

397.—(1) (a) Where a company ceasing to carry on a trade has, in any accounting period falling wholly or partly within the previous 12 months, incurred a loss in the trade, the company may claim to set the loss off for the purposes of corporation tax against trading income from the trade in accounting periods falling wholly or partly within the 3 years preceding those 12 months (or within any shorter period throughout which the company has carried on the trade) and, subject to subsections (2) and (3) and to any relief for earlier losses, the trading income of any of those accounting periods shall then be treated as reduced by the amount of the loss, or by so much of that amount as cannot be relieved under this subsection against income of a later accounting period.

• (b) Relief shall not be given under this subsection in respect of any loss in so far as the loss has been orcan be otherwise taken into account so as to reduce or relieve any charge to tax.

• (2) Where a loss is incurred in an accounting period falling partly outside the 12 months mentioned in subsection (1), relief shall be given under that subsection in respect of a part only of that loss proportionate to the part of the period falling within those 12 months, and the amount of the reduction which may be made under that subsection in the trading income of an accounting period falling partly outside the 3 years mentioned in that subsection shall not exceed a part of that income proportionate to the part of the period falling within those 3 years.

• (3) Subsections (5) to (8) of section 396 shall apply for the purposes of this section as they apply for the purposes of section 396(1), and relief shall not be given under this section in respect of a loss incurred in a trade so as to interfere with any relief under section 243 in respect of payments made wholly and exclusively for the purposes of that trade.

398 Computation of losses attributable to exemption of income from certain securities. [FA92 s42(2) and (3)(b) (apart from proviso thereto)]

398.—(1) Notwithstanding subsection (5) of section 396 or subsection (3) of section 397, in ascertaining for the purposes of those sections whether and to what extent a company has incurred a loss in carrying on a trade in the State through a branch or agency, the interest on, and other profits or gains from, a security held by or for the branch or agency shall be treated as a trading receipt of the trade if such interest or other profits or gains would, if sections 43, 49 and 50 had not been enacted, have been so treated, or have been included in an amount so treated.

• (2) Subsection (1) shall apply for the purposes of ascertaining whether and to what extent a company has incurred a loss where apart from that subsection the company would be treated as having incurred a loss and that loss would be—

• (a) set-off against the trading income or profits (whether of that company or any other company) of, or

• (b) incurred in,

an accounting period.

399 Losses in transactions from which income would be chargeable under Case IV or V of Schedule D. [CTA76 s19]

399.—(1) (a) Where in any accounting period a company incurs a loss in a transaction in respect of which the company is within the charge to corporation tax under Case IV of Schedule D, the company may claim to set the loss off against the amount of any income arising from such transactions in respect of which the company is assessed to corporation tax under that Case for the same or any subsequent accounting period, and the company's income in any accounting period from such transactions shall then be treated as reduced by the amount of the loss, or by so much of that amount as cannot be relieved under this section against income of an earlier accounting period.

• (b) Where a company sustains a loss in a transaction which, if profit had arisen from it, would be chargeable to tax by virtue of subsection (3) or (4) of section 814, then, if the company is chargeable totax in respect of the interest payable on the amount of money the right to which has been disposed of, the amount of that interest shall be included in the amounts against which the company may claim to set off the amount of its loss under this subsection.

• (2)
• (a) Where in any accounting period a company is within the charge to corporation tax under Case V of Schedule D and the aggregate of the deficiencies, computed in accordance with section 97(1), exceeds the aggregate of the surpluses as so computed, the excess may, on a claim being made in that behalf, be deducted from or set off, as far as may be, against the amount of any income in respect of which the company is assessed to corporation tax under Case V of Schedule D for previous accounting periods ending within the time specified in subsection (3), and, subject to that subsection and to any relief for an earlier excess of deficiencies, that income of any of those periods shall then be treated as reduced, as far as may be, by the amount of the excess, and any portion of the excess for which relief is not so given shall be set off against the income in respect of which the company is assessed to corporation tax under Case V of Schedule D for any subsequent accounting period.

• (b) Any relief under this subsection by means of carrying forward any portion of the excess referred to in paragraph (a) shall be given as far as possible from the first subsequent assessment and, in so far as it cannot be so given, then from the next assessment and so on.

• (3) The time referred to in subsection (2) shall be a time immediately preceding the accounting period first mentioned in subsection (2) equal in length to the accounting period in which the excess of deficiencies occurred; but the amount of the reduction which may be made under that subsection in the income of an accounting period falling partly before that time shall not exceed a part of that income proportionate to the part of the period falling within that time.

• (4) A claim under subsection (2) shall be made within 2 years from the end of the accounting period in which the excess of deficiencies was incurred.

400 Company reconstructions without change of ownership. [CTA76 s20]

400.—(1) For the purposes of this section—

• (a) a trade carried on by 2 or more persons shall be treated as belonging to them in the shares in which they are entitled to the profits of the trade;

• (b) a trade or interest in a trade belonging to any person as trustee (otherwise than for charitable or public purposes) shall be treated as belonging to the persons for the time being entitled to the income under the trust;

• (c) a trade or interest in a trade belonging to a company shall, where the result of so doing is that subsection (5) or (10) applies in relation to an event, be treated in any of the ways permitted by subsection (2).

• (2) For the purposes of this section, a trade or interest in a trade which belongs to a company engaged in carrying on the trade may be regarded—

• (a) as belonging to the persons owning the ordinary share capital of the company and as belonging to those persons in proportion to the amount of their holdings of that capital, or

• (b) in the case of a company which is a subsidiary company, as belonging to a company which is its parent company, or as belonging to the persons owning the ordinary share capital of that parent company, and as belonging to those persons in proportion to the amount of their holdings of that capital,

and any ordinary share capital owned by a company may, if any person or body of persons has the power to secure by means of the holding of shares or the possession of voting power in or in relation to any company, or by virtue of any power conferred by the articles of association or other document regulating any company, that the affairs of the company owning the share capital are conducted in accordance with that person's or that body of persons' wishes, be regarded as owned by that person or body of persons having that power.

• (3) For the purposes of subsection (2)—

• (a) references to ownership shall be construed as references to beneficial ownership;

• (b) a company shall be deemed to be a subsidiary of another company if and so long as not less than 75 per cent of its ordinary share capital is owned by that other company, whether directly or through another company or other companies, or partly directly and partly through another company or other companies;

• (c) the amount of ordinary share capital of one company owned by a second company through another company or other companies, or partly directly and partly through another company or other companies, shall be determined in accordance with subsections (5) to (10) of section 9;

• (d) where any company is a subsidiary of another company, that other company shall be considered as its parent company unless both are subsidiaries of a third company.

• (4) In determining for the purposes of this section whether or to what extent a trade belongs at different times to the same persons, persons who are relatives of one another and the persons from time to time entitled to the income under any trust shall respectively be treated as a single person, and for this purpose “relative” means husband, wife, ancestor, lineal descendant, brother or sister.

• (5)
• (a) Where, on a company (in this section referred to as “the predecessor”) ceasing to carry on a trade, another company (in this section referred to as “the successor”) begins to carry on the trade and—

• (i) on or at any time within 2 years after that event, the trade or an interest amounting to not less than a 75 per cent share in the trade belongs to the same persons as the trade or such an interest belonged to at some time within a year before that event, and

• (ii) the trade is not, within the period taken for the comparison under subparagraph (i), carried on otherwise than by a company within the charge to tax in respect of the trade,

then, the Corporation Tax Acts shall apply subject to subsections (6) to (9).

• (b) In subparagraphs (i) and (ii) of paragraph (a), references to the trade shall apply also to any other trade of which the activities comprise the activities of the first-mentioned trade.

• (6) The trade shall not be treated as permanently discontinued nor a new trade as set up and commenced for the purpose of the allowances and charges provided for by sections 307 and 308; but there shall be made to or on the successor in accordance with those sections all such allowances and charges as would, if the predecessor had continued to carry on the trade, have been made to or on the predecessor, and the amount of any such allowance or charge shall be computed as if the successor had been carrying on the trade since the predecessor began to do so and as if everything done to or by the predecessor had been done to or by the successor (but so that no sale or transfer which on the transfer of the trade is made to the successor by the predecessor of any assets in use for the purpose of the trade shall be treated as giving rise to any such allowance or charge).

• (7) The predecessor shall not be entitled to relief under section 397 except as provided by subsection (9) and, subject to any claim made by the predecessor under section 396(2), the successor shall be entitled to relief under section 396(1), as for a loss sustained by the successor in carrying on the trade, for any amount for which the predecessor would have been entitled to claim relief if the predecessor had continued to carry on the trade.

• (8) Any securities within the meaning of section 748 which, at the time when the predecessor ceases to carry on the trade, form part of the trading stock belonging to the trade shall be treated for the purposes of that section as having been sold at that time in the open market by the predecessor and as having been purchased at that time in the open market by the successor.

• (9) On the successor ceasing to carry on the trade—

• (a) if the successor does so within 4 years of succeeding to the trade, any relief which might be given to the successor under section 397 on the successor ceasing to carry on the trade may, in so far as that relief cannot be given to the successor, be given to the predecessor as if the predecessor had incurred the loss (including any amount treated as a loss under section 397(3)), and

• (b) if the successor ceases to carry on the trade within one year of succeeding to the trade, relief may be given to the predecessor under section 397 in respect of any loss incurred by the predesessor (or any amount treated as such a loss under section 397(3));

but, for the purposes of section 397 as it applies by virtue of this subsection to the giving of relief to the predecessor, the predecessor shall be treated as ceasing to carry on the trade when the successor does so.

• (10) Where the successor ceases to carry on the trade within the period taken for the comparison under subsection (5)(a)(i) and, on its doing so, a third company begins to carry on the trade, then, no relief shall be given to the predecessor by virtue of subsection (9) by reference to that event; but, subject to that, subsections (6) to (9) shall apply both in relation to that event (together with the new predecessor and successor) and to the earlier event (together with the original predecessor and successor), but so that—

• (a) in relation to the earlier event, “successor” shall include the successor at either event, and

• (b) in relation to the later event, “predecessor” shall include the predecessor at either event,

and, if the conditions of this subsection are thereafter again satisfied, this subsection shall apply again in the like manner.

• (11) Where, on a company ceasing to carry on a trade, another company begins to carry on the activities of the trade as part of its trade, that part of the trade carried on by the successor shall for the purposes of this subsection be treated as a separate trade, if the effect of so treating it is that subsection (5) or (10) applies to that event in relation to that separate trade, and where, on a company ceasing to carry on part of a trade, another company begins to carry on the activities of that part as its trade or part of its trade, the predecessor shall for the purposes of this section be treated as having carried on that part of its trade as a separate trade, if the effect of so treating it is that subsection (5) or (10) applies to that event in relation to that separate trade.

• (12) Where under subsection (11) any activities of a company's trade are to be treated as a separate trade on the company ceasing or beginning to carry them on, any necessary apportionment shall be made of receipts or expenses.

• (13) Where by virtue of subsection (12) any sum is to be apportioned and, at the time of the apportionment, it appears that it is material as respects the liability to tax (for whatever period) of 2 or more companies, any question which arises as to the manner in which the sum is to be apportioned shall, for the purposes of the tax of all those companies, be determined by the Appeal Commissioners who shall determine the question in the like manner as if it were an appeal against an assessment, and the provisions of the Income Tax Acts relating to the rehearing of an appeal and to the statement of a case for the opinion of the High Court on a point of law shall apply accordingly with any necessary modifications, and all those companies shall be entitled to appear before and be heard by the Appeal Commissioners or to make representations to them in writing.

• (14) Any relief to be given under this section by means of discharge or repayment of tax shall be given on the making of a claim.

401 Change in ownership of company: disallowance of trading losses. [CTA76 s27(1) to (7)]

401.—(1) In this section, “major change in the nature or conduct of a trade” includes—

• (a) a major change in the type of property dealt in, or services or facilities provided, in the trade, or

• (b) a major change in customers, outlets or markets of the trade,

and this section shall apply even if the change is the result of a gradual process which began outside the period of 3 years mentioned in subsection (2)(a).

• (2) Where—

• (a) within any period of 3 years, there is both a change in the ownership of a company and (whether earlier or later in that period or at the same time) a major change in the nature or conduct of a trade carried on by the company, or

• (b) at any time after the scale of the activities in a trade carried on by a company has become small or negligible and before any considerable revival of the trade, there is a change in the ownership of the company,

relief shall not be given—

• (i) under section 396 by setting a loss incurred by the company in an accounting period beginning before the change of ownership against any income or other profits of an accounting period ending after the change of ownership, or

• (ii) under paragraph 16 or 18 of Schedule 32 against corporation tax payable for any accounting period ending after the change of ownership.

• (3)
• (a) In applying this section to the accounting period in which the change of ownership occurs, the part ending with the change of ownership and the part after that change shall be treated as 2 separate accounting periods, and the profits or losses of the accounting period shall be apportioned to the 2 parts.

• (b) The apportionment under paragraph (a) shall be on a time basis according to the respective lengths of the 2 parts except that, if it appears that that method would operate unreasonably or unjustly, such other method shall be used as appears just and reasonable.

• (4) In relation to any relief available under section 400, subsection (2) shall apply as if any loss sustained by a predecessor company had been sustained by a successor company and as if the references to a trade included references to the trade as carried on by a predecessor company.

• (5)
• (a) Where relief in respect of a company's losses has been restricted under this section, then, notwithstanding section 320(6), in applying the provisions of Part 9 and of Chapter 1 of Part 29 relating to balancing charges to the company by reference to any event after the change of ownership of the company, any allowance or deduction to be made in taxing the company's trade for any chargeable period before the change of ownership shall be disregarded unless the profits or gains of that chargeable period, or of any subsequent chargeable period before the change of ownership, were sufficient to give effect to the allowance or deduction.

• (b) In applying this subsection, it shall be assumed that any profits or gains are applied in giving effect to any suchallowance or deduction in preference to being set off against any loss which is not attributable to such an allowance or deduction.

• (6) Where the operation of this section depends on circumstances or events at a time after the change of ownership (but not more than 3 years after that change), an assessment to give effect to this section shall not be out of time if made within 10 years from that time or the latest of those times.

• (7) Schedule 9 shall apply for the purpose of supplementing this section.

CHAPTER 4 Income tax and corporation tax: treatment of certain losses and certain capital allowances

402 Foreign currency: tax treatment of capital allowances and trading losses of a company. [CTA76 s14A; FA94 s56(b)]

402.—(1) (a) In this section—

“functional currency” means—

• (i) in relation to a company resident in the State, the currency of the primary economic environment in which the company operates, and

• (ii) in relation to a company not resident in the State, the currency of the primary economic environment in which the company carries on trading activities in the State,

but, where the profit and loss account of a company for any period of account has been prepared in terms of the currency of the State, that currency shall be the functional currency of the company for that period;

“profit and loss account” and “rate of exchange” have the same meanings respectively as in section 79;

“representative rate of exchange” means a rate of exchange of a currency for another currency equal to the mid-market rate at close of business recorded by the Central Bank of Ireland, or by a similar institution of another State, for those 2 currencies.

• (b) For the purposes of this section, the currency of the primary economic environment of a company shall be determined—

• (i) in the case of a company resident in the State, with reference to the currency in which—

• (I) revenues and expenses of the company are primarily generated, and

• (II) the company primarily borrows and lends, and

• (ii) in the case of a company not so resident which carries on trading activities in the State, with reference to the currency in which—

• (I) revenues and expenses of those activities are primarily generated, and

• (II) the company primarily borrows and lends for the purposes of those activities.

• (c) For the purposes of this section, the day on which any expenditure is incurred shall be taken to be the day on which the sum in question becomes payable.

• (2)
• (a) Subject to paragraph (b), the amount (which may be nil) of any allowance or charge to be made for any accounting period—

• (i) in taxing a trade of a company, and

• (ii) by reference to capital expenditure incurred by the company on or after the 1st day of January, 1994,

shall be—

• (I) computed in terms of the functional currency of the company by reference to amounts expressed in that currency, and

• (II) given effect, in accordance with section 307(2)(a), by being treated as a trading expense or receipt, as the case may be, of the trade in computing the trading income or loss, expressed in that functional currency, of the trade for that accounting period.

• (b) (i) For the purposes of the computation of an allowance or charge to be made for an accounting period (in this paragraph referred to as “the first-mentioned period”) by reference to capital expenditure incurred by a company on or after the 1st day of January, 1994, and

• (ii) without prejudice to any allowance made by reference to that expenditure for an accounting period earlier than the first-mentioned period,

where that expenditure was incurred, or an allowance referable to that expenditure was computed, in terms of a currency other than the functional currency of the company for the first-mentioned period, then, that expenditure or allowance, as the case may be, shall be expressed in terms of that functional currency by reference to a representative rate of exchange of that functional currency for the other currency for the day on which that expenditure was incurred.

• (3)
• (a) Subject to paragraph (b), for the purposes of sections 396 and 397, the amount (which may be nil) of any set-off due to a company against income or profits of an accounting period in respect of a loss from a trade incurred by the company in an accounting period shall—

• (i) be computed in terms of the company's functional currency by reference to amounts expressed in that currency, and

• (ii) then be expressed in terms of the currency of the State by reference to the rate of exchange which—

• (I) is used to express in terms of the currency of the State the amount of the income from the trade for the accounting period in which the loss is to be set off, or

• (II) would be so used if there were such income.

• (b) (i) For the purposes of the computation of any set-off due to a company against income or profits of an accounting period (in this paragraph referred to as “the first-mentioned period”) in respect of a loss from a trade incurred by the company in an accounting period, and

• (ii) without prejudice to any set-off made against the income or profits of an accounting period earlier than the first-mentioned period by reference to that loss,

where that loss, or any set-off referable to that loss, was computed in terms of a currency other than the functional currency of the company for the first-mentioned period, then, that loss or set-off, as the case may be, shall be expressed in terms of that functional currency by reference to a rate of exchange of that functional currency for the other currency, being an average of representative rates of exchange of that functional currency for the other currency during the accounting period in which the loss was incurred.

403 Restriction on use of capital allowances for certain leased assets. [FA84 s40(1) to (10); FA86 s53; FA87 s26; FA90 s41(5)(a) and (c); FA94 s61(1)]

403.—(1) (a) In this section—

“chargeable period or its basis period” has the same meaning as in section 321(2);

“lessee” and “lessor”, in relation to machinery or plant provided for leasing, mean respectively the person to whom the machinery or plant is or is to be leased and the person providing the machinery or plant for leasing, and “lessee” and “lessor” include respectively the successors in title of a lessee or a lessor;

“the relevant period” has the meaning assigned to it by subsection (9)(b);

“the specified capital allowances” means capital allowances in respect of—

• (i) expenditure incurred on machinery or plant provided on or after the 25th day of January, 1984, for leasing in the course of a trade of leasing, or

• (ii) the diminished value of such machinery or plant by reason of wear and tear,

other than capital allowances in respect of machinery or plant to which subsection (6), (7), (8) or (9) applies;

“trade of leasing” means—

• (i) a trade which consists wholly of the leasing of machinery or plant, or

• (ii) any part of a trade treated as a separate trade by virtue of subsection (2).

• (b) For the purposes of this section—

• (i) letting on charter a ship or aircraft which has been provided for such letting, and

• (ii) letting any item of machinery or plant on hire,

shall be regarded as leasing of machinery or plant if apart from this paragraph it would not be so regarded.

• (c) Where a company carries on a trade of operating ships in the course of which a ship is let on charter, paragraph (b) shall not apply so as to treat the letting on charter as the leasing of machinery or plant if apart from this section the letting would be regarded for the purposes of Case I of Schedule D as part of the activities of the trade.

• (2) Where in any chargeable period or its basis period a person carries on as part of a trade any leasing of machinery or plant, that leasing shall be treated for the purposes of the Tax Acts, other than any provision of those Acts relating to the commencement or cessation of a trade, as a separate trade distinct from all other activities carried on by such person as part of the trade, and any necessary apportionment shall be made of receipts or expenses.

• (3)
• (a) Notwithstanding section 381, where relief is claimed under that section in respect of a loss sustained in a trade of leasing, the amount of that loss, in so far as by virtue of section 392 it is referable to the specified capital allowances, shall be treated for the purposes of subsections (1) and (3)(b) of section 381 as reducing profits or gains of that trade of leasing only and shall not be treated as reducing any other income.

• (b) Where paragraph (a) applies in the case of any claimant to relief under section 381—

• (i) any limitation imposed by section 393 on the amount of capital allowances which may be taken into account under section 392 shall be referred, as far as may be, to the specified capital allowances rather than to any other capital allowances, and

• (ii) notwithstanding section 392(2) (but without prejudice to paragraph (a) and to the order in which income is to be treated as reduced under section 381(3)(b)),the claimant may specify the extent to which any reduction of income treated as occurring by virtue of section 381 is to be referred to so much of the loss as is attributable to the loss, if any, actually sustained in the trade of leasing, the specified capital allowances or any other capital allowances, and, where the claimant so specifies, section 394 shall apply in accordance with the claimant's specification and not in accordance with section 392(2).

• (4)
• (a) Where in an accounting period a company carrying on a trade of leasing incurs a loss in that trade and any specified capital allowances have been treated by virtue of section 307 or 308 as trading expenses in arriving at the amount of the loss, the relevant amount of the loss shall not be available—

• (i) for relief under section 396(2), except to the extent that it can be set off under that section against the company's income from the trade of leasing only, or

• (ii) to be surrendered by means of group relief.

• (b) For the purposes of paragraph (a), the relevant amount of the loss shall be the full amount of the loss or, if it is less, an amount equal to—

• (i) where no capital allowances, other than the specified capital allowances, have been treated by virtue of section 307 or 308 as trading expenses in arriving at the amount of the loss, the amount of the specified capital allowances, or

• (ii) where, in addition to the specified capital allowances, other capital allowances have been so treated by virtue of section 307 or 308, the lesser of—

• (I) the amount of the specified capital allowances, and

• (II) the amount by which the loss exceeds the amount of the other capital allowances;

but, where the amount of the loss does not exceed the amount of the other capital allowances, the relevant amount of the loss shall be nil.

• (5) Sections 305(1)(b), 308(4) and 420(2) shall not apply in relation to capital allowances—

• (a) in respect of expenditure incurred on or after the 25th day of January, 1984, on the provision of machinery or plant, or

• (b) in respect of the diminished value of machinery or plant by reason of wear and tear, if that machinery or plant was first acquired on or after the 25th day of January, 1984, by the person to whom the capital allowances are to be or have been made,

other than capital allowances in respect of machinery or plant to which subsection (6) or (7) applies.

• (6) References in this section to machinery or plant to which this subsection applies are references to machinery or plant provided on or after the 25th day of January, 1984, for leasing where the expenditure incurred on the provision of the machinery or plant was incurred under an obligation entered into by the lessor and the lessee before—

• (a) the 25th day of January, 1984, or

• (b) the 1st day of March, 1984, pursuant to negotiations which were in progress between the lessor and the lessee before the 25th day of January, 1984.

• (7) References in this section to machinery or plant to which this subsection applies are references to machinery or plant provided on or after the 25th day of January, 1984, for leasing where the expenditure incurred on the provision of the machinery or plant (or, in the case of a film to which section 6 or 7 of the Irish Film Board Act, 1980, applies, the cost of the making of the film) has been or is to be met directly or indirectly, wholly or partly, by the Industrial Development Authority, the Irish Film Board, the Shannon Free Airport Development Company Limited, or Údarás na Gaeltachta; but this subsection shall not apply to machinery or plant provided for leasing on or after the 13th day of May, 1986, unless—

• (a) the machinery or plant is a film to which section 6 or 7 of the Irish Film Board Act, 1980, applies, or

• (b) the expenditure incurred on the provision of the machinery or plant (not being a film of the kind mentioned in paragraph (a)) was incurred under an obligation entered into by the lessor and the lessee before—

• (i) the 13th day of May, 1986, or

• (ii) the 1st day of September, 1986, pursuant to negotiations which were in progress between the lessor and the lessee before the 13th day of May, 1986.

• (8) The reference in the definition of “the specified capital allowances” to machinery or plant to which this subsection applies is a reference to machinery or plant provided for leasing by a lessor to a lessee in the course of the carrying on by the lessor of relevant trading operations within the meaning of section 445 or 446, and—

• (a) in respect of the expenditure on which no allowance has been or will be made under section 283, or

• (b) in respect of which no allowance on account of wear and tear to be made under section 284 has been or will be increased under section 285.

• (9)
• (a) (i) In this subsection, “specified trade”, in relation to a lessee, means a trade which throughout the relevant period consists wholly or mainly of the manufacture of goods (including activities which, if the lessee were to make a claim for relief in respect of the trade under Part 14, would be regarded for the purposes of that Part as the manufacture of goods).

• (ii) For the purposes of subparagraph (i), a trade shall be regarded, as respects the relevant period, as consisting wholly or mainly of particular activities only if the total amount receivable by the lessee fromsales made or, as the case may be, in payment for services rendered in the course of those activities in the relevant period is not less than 75 per cent of the total amount receivable by the lessee from all sales made or, as the case may be, in payment for all services rendered in the course of the trade in the relevant period.

• (iii) As respects a person who carries on a trade of leasing and who incurred expenditure on the provision before the 20th day of April, 1990, of machinery or plant for leasing under an obligation entered into before that date by the lessor and a lessee who carries on a trade which but for section 443(6) would be a specified trade, this subsection shall apply as if the trade carried on by the lessee were a specified trade.

• (iv) For the purposes of subparagraph (iii), an obligation shall be treated as entered into before the 20th day of April, 1990, only if before that date there were in existence a binding contract in writing under which that obligation arose.

• (b) The reference in the definition of “the specified capital allowances” to machinery or plant to which this subsection applies is a reference to machinery or plant (not being a film of the kind mentioned in subsection (7)(a)) provided on or after the 13th day of May, 1986, for leasing by a lessor to a lessee (who is not a person connected with the lessor) under a lease the terms of which include an undertaking given by the lessee that, during a period (in this section referred to as “the relevant period”) which is not less than 3 years and which commences on the day on which the machinery or plant is first brought into use by the lessee, the machinery or plant so provided will be used by the lessee for the purposes only of a specified trade carried on in the State by the lessee.

• (c) Any machinery or plant in respect of which an undertaking mentioned in paragraph (b) has been given by a lessee, and which at any time has been treated as machinery or plant to which this subsection applies, shall at any later time cease to be machinery or plant to which this subsection applies if at that later time it appears to the inspector (or on appeal to the Appeal Commissioners) that the undertaking has not been fulfilled by the lessee.

• (d) Where any machinery or plant ceases in accordance with paragraph (c) to be machinery or plant to which this subsection applies, such assessments or adjustments of assessments shall be made to recover from the lessor any relief from tax given to the lessor because the machinery or plant was treated as machinery or plant to which this subsection applies.

• (e) This subsection shall not apply to machinery or plant provided for leasing on or after the 13th day of May, 1986, if the expenditure incurred on the provision of the machinery or plant was incurred under an obligation entered into by the lessor and the lessee before—

• (i) the 13th day of May, 1986, or

• (ii) the 1st day of September, 1986, pursuant to negotiations which were in progress between the lessor and the lessee before the 13th day of May, 1986.

• (10) For the purposes of subsections (6), (7) and (9)—

• (a) an obligation shall be treated as having been entered into before a particular date only if before that date there was in existence a binding contract in writing under which that obligation arose, and

• (b) negotiations pursuant to which an obligation was entered into shall not be regarded as having been in progress between a lessor and a lessee before a particular date unless on or before that date preliminary commitments or agreements in relation to that obligation had been entered into between the lessor and the lessee.

404 Restriction on use of capital allowances for certain leased machinery or plant. [FA94 s30(1) to (5) and (7)]

404.—(1) (a) In this section—

“agricultural machinery” means machinery or plant used or intended to be used for the purposes of a trade of farming (within the meaning of section 654) or machinery or plant of a type commonly used for such a trade which is used or intended to be used for the purposes of a trade which consists of supplying services which normally play a part in agricultural production;

“asset” means machinery or plant;

“chargeable period”, “chargeable period related to”, and “chargeable period or its basis period” have the same meanings respectively as in section 321(2);

“fair value”, in relation to a leased asset, means an amount equal to such consideration as might be expected to be paid for the asset at the inception of the lease on a sale negotiated on an arm's length basis, less any grants receivable by the lessor towards the purchase of the asset;

“inception of the lease” means the date on which the leased asset is brought into use by the lessee or the date from which lease payments under the lease first accrue, whichever is the earlier;

“lease payments” means the lease payments over the term of the lease to be paid to the lessor in relation to the leased asset, and includes any residual amount to be paid to the lessor at or after the end of the term of the lease and guaranteed by the lessee or by a person connected with the lessee or under the terms of any scheme or arrangement between the lessee and any other person;

“lessee” and “lessor” have the same meanings respectively as in section 403;

“predictable useful life”, in relation to an asset, means the useful life of the asset estimated at theinception of the lease, having regard to the purpose for which the asset was acquired and on the assumption that—

• (i) its life will end when it ceases to be useful for the purpose for which it was acquired, and

• (ii) it will be used in the normal manner and to the normal extent throughout its life;

“relevant lease payment” means—

• (i) the amount of any lease payment as provided under the terms of the lease, or

• (ii) where the lease provides for the amount of any lease payment to be determined by reference to a rate known as the Dublin Interbank Offered Rate and a record of which is kept by the Central Bank of Ireland, or a similar rate, the amount calculated by reference to that rate if the rate per cent at the inception of the lease were the rate per cent at the time of the payment;

“relevant lease payments related to a chargeable period or its basis period” means relevant lease payments under the lease or the amounts which are treated as the relevant lease payments and which, if they were the actual amounts payable under the lease, would be taken into account in computing the income of the lessor for that chargeable period or its basis period or any earlier such period;

“relevant period” means the period—

• (i) beginning at the inception of the lease, and

• (ii) ending at—

• (I) the earliest time at which the aggregate of amounts of the discounted present value at the inception of the lease of relevant lease payments which are payable at or before that time amounts to 90 per cent or more of the fair value of the leased asset, or

• (II) if it is earlier, at the end of the predictable useful life of the asset,

and, for the purposes of this definition, relevant lease payments shall be discounted at a rate which, when applied at the inception of the lease to the amount of the relevant lease payments, produces discounted present values the aggregate of which equals the amount of the fair value of the leased asset at the inception of the lease, but where the duration of the relevant period determined in accordance with the preceding provisions of this definition is more than 7 years, the relevant period shall not be the period so determined but shall bethe period which would be determined in accordance with this definition if for “90 per cent” there were substituted “95 per cent”.

• (b) For the purposes of this section—

• (i) a lease of an asset shall be a relevant lease unless—

• (I) as respects any chargeable period or its basis period of the lessor which falls wholly or partly in the relevant period, the aggregate of the amounts of relevant lease payments related to the chargeable period or its basis period and the amounts of relevant lease payments related to any earlier chargeable period or its basis period is not less than an amount determined by the formula—

W × P ×	90 + (10 × W) ____ 100

where—

P is the aggregate of the amounts of relevant lease payments payable by the lessee in relation to the leased asset in the relevant period, and

W is an amount determined by the formula—

E __ R

where—

E is the length of the part of the relevant period which has expired at the end of the chargeable period or its basis period, and

R is the length of the relevant period, and

• (II) except for an amount of relevant lease payments which is inconsequential, the excess of the total relevant lease payments under the lease over the aggregate of the relevant lease payments in the relevant period is payable to the lessor, or would be so payable if the relevant lease payments were the actual amounts payable under the lease, within a period the duration of which does not exceed—

• (A) where the exception to the definition of “relevant period” does not apply, one-seventh of the duration of the relevant period, and

• (B) where that exception does apply, one-ninth of the duration of the relevant period,

or one year, whichever is the greater, and which commences immediately after the end of the relevant period,

• (ii) a lease, the duration of the relevant period in respect of which exceeds 10 years and which apart from this subparagraph would be a relevant lease, shall not be a relevant lease if it is a lease of an asset, being an asset—

• (I) provided for the purposes of a project, specified in the list referred to in section 133(8)(c)(iv), which has been approved for grant aid by the Industrial Development Authority, the Shannon Free Airport Development Company Limited or Udarás na Gaeltachta, and

• (II) to which section 283(5) or 285(7)(a)(i) applies,

and it would not be a relevant lease if for clauses (I) and (II) of subparagraph (i) there were substituted the following:

• “(I) the aggregate of the relevant lease payments related to a chargeable period or its basis period of the lessor which falls wholly or partly in the period (in this subsection referred to as the ‘first period’) of 3 years beginning at the inception of the lease is not less than an amount determined by the formula—

V ×	D ____ 100	×	80 ____ 100	×	M ___ 12

where—

D is the rate per cent at the inception of the lease of the rate known as the 6 month Dublin Interbank Offered Rate and a record of which is maintained by the Central Bank of Ireland, expressed as a rate per annum,

M is the number of months in the chargeable period or its basis period, and

V is the fair value of the asset at the inception of the lease,

• (II) as respects any chargeable period or its basis period of the lessor which falls wholly or partly in the period (in this subsection referred to as ‘the second period’) commencing immediately after the first period and ending at the end of the relevant period, the aggregate of the amounts of relevant lease payments related to the chargeable period or its basis period and the amounts of relevant lease payments related to any earlier chargeable period or its basis period falling wholly or partly in the second period is not less than an amount determined by the formula—

E ___ R	× P

where—

E is the length of the part of the second period which has expired at the end of the chargeable period or its basis period,

P is the aggregate of the amounts of relevant lease payments payable by the lessee in relation to the leased asset in the second period, and

R is the length of the second period, and

• (III) except for an amount of relevant lease payments which is inconsequential, the excess of the total relevant lease payments under the lease over the aggregate of the relevant lease payments in the relevant period is payable to the lessor, or would be so payable if the relevant lease payments were the actual amounts payable under the lease, within aperiod of one year after the end of the relevant period.”,

• (iii) an amount of relevant lease payments shall be treated as inconsequential if the aggregate of amounts, estimated at the inception of the lease, of discounted value, at the end of the period specified in clause (II) of subparagraph (i) or clause (III) of that subparagraph (construed in accordance with subparagraph (ii)), as the case may be, of the relevant lease payments after that time does not exceed 5 per cent of the fair value of the leased asset or £2,000, whichever is the lesser, and, for the purposes of this subparagraph, relevant lease payments shall be discounted at the rate specified in the definition of “relevant period”, and

• (iv) where a chargeable period or its basis period, being an accounting period of a company, begins before and ends after a date, being the commencement of the relevant period, the first period or the second period or the end of such a period, as the case may be, it shall be divided into one part beginning on the day on which the accounting period begins and ending at the beginning or the end, as the case may be, of the relevant period, the first period or the second period, and another part beginning immediately after that time and ending on the day on which the accounting period ends, and both parts shall be treated as if they were separate accounting periods.

• (2)
• (a) Where in the course of a trade an asset is provided by a person for leasing under a relevant lease, the letting of the asset under that relevant lease shall be treated as a separate trade of leasing (in this subsection referred to as a “specified leasing trade”) distinct from all other activities, including other leasing activities, of the person, and section 403, apart from subsections (5) to (9) of that section, shall apply in relation to a specified leasing trade as it applies in relation to a trade of leasing within the meaning of that section.

• (b) Sections 305(1)(b), 308(4) and 420(2) shall not apply in relation to capital allowances—

• (i) in respect of expenditure incurred on the provision of an asset, or

• (ii) on account of the wear and tear of an asset,

which is provided by a person for leasing under a relevant lease.

• (3) Notwithstanding subsection (1)(b), a lease of an asset which consists of agricultural machinery or plant shall not be a relevantlease unless it would be such a lease if the amounts of relevant lease payments related to any chargeable period or its basis period were taken to be an amount equal to 50 per cent of the aggregate of the amounts of relevant lease payments related to that chargeable period or its basis period and the amounts of relevant lease payments related to a period equal in length to, and ending immediately before the commencement of, that period.

• (4)
• (a) Where at any time after the 11th day of April, 1994, either of the following events occurs—

• (i) the terms of a lease of an asset entered into before that day are altered, or

• (ii) a lessor and a lessee agree to terminate a lease of an asset and, at or about that time, a further agreement to lease the asset is entered into by the lessor and the lessee or an agreement is entered into by the lessor and a person connected with the lessee, by the lessee and a person connected with the lessor or by a person connected with the lessor and a person connected with the lessee,

such that the aggregate of the amounts of the lease payments which are payable, or which would be payable if the relevant lease payments were the actual amounts payable under the lease, after any time exceeds the aggregate of the amounts of such relevant lease payments which would have been payable after that time if the events in subparagraph (i) or (ii) had not taken place, then, notwithstanding subsection (6)(a), unless it is shown that the change or the termination was effected for bona fide commercial reasons, the lease (including the terminated lease) shall be treated as if it were at all times a relevant lease, and relief given under Part 9, Chapter 1 or 2 of this Part, or section 396 or 420, which would not have been given if the lease was a relevant lease, shall be withdrawn.

• (b) The withdrawal of an allowance or relief under paragraph (a) shall be made—

• (i) for the chargeable period related to the event giving rise to the withdrawal of the relief, and

• (ii) in accordance with paragraph (c), and both—

• (I) details of the event giving rise to the withdrawal of the allowance or relief, and

• (II) the amount to be treated as income under paragraph (c),

shall be included in the return required to be made by the lessor under section 951 for that chargeable period.

• (c) (i) Notwithstanding any other provision of the Tax Acts, where relief is to be withdrawn under paragraph (a) in respect of—

• (I) any amount which was set off against income under section 305,

• (II) the amount of any loss which was set off under section 307, 308, 396 or 420 against profits, or

• (III) the amount of any loss which was treated by virtue of a claim under section 381 as reducing income,

and which would not have been so set off or treated if the lease were a relevant lease, such amount (in this subsection referred to as “the relevant amount”) as would not have been so set off or treated, increased in accordance with subparagraph (ii), shall be treated as income arising in the chargeable period specified in paragraph (b)(i).

• (ii) The amount by which the relevant amount is to be increased under subparagraph (i) shall be an amount determined by the formula—

A ×	R ____ 100	× M

where—

A is the relevant amount,

M is the number of months in the period beginning on the date on which tax for the chargeable period in which the losses were treated as reducing income, or set off against profits, as the case may be, was due and payable and ending on the date on which tax for the chargeable period for which the withdrawal of relief is to be made is due and payable, and

R is the rate per cent specified in section 1080(1).

• (5) Notwithstanding subsection (1)(b), where at any time on or after the 11th day of April, 1994, a person (in this subsection referred to as “the lessor”) acquires an asset from another person who before that date was the owner of the asset and at or about that time the lessor or a person connected with the lessor leases the asset to the other person or a person connected with the other person, then, unless—

• (a) the asset is new and unused, or

• (b) the lease would not be a relevant lease if—

• (i) for the first formula in subsection (1)(b)(i)(I) there were substituted “W × P”, and

• (ii) subsection (1)(b)(ii) had not been enacted,

the lease shall be a relevant lease for the purposes of this section.

• (6) This section shall apply as on and from the 23rd day of December, 1993; but a lease of an asset shall not be a relevant lease if—

• (a) a binding contract in writing for the letting of the asset was concluded before that day,

• (b) the leasing of the asset is carried on in the course of relevant trading operations within the meaning of section 445 or 446, or

• (c) subject to subsections (4) and (5)—

• (i) the relevant period does not exceed 5 years,

• (ii) the fair value of the asset does not exceed £50,000 and, except where the assets are separate and distinct assets used independently of each other and the use of one is not an integral part of the use of the other, the fair value of an asset which is leased by a lessor to a lessee shall for the purposes of this subparagraph be treated as exceeding £50,000 if the aggregate of the fair value of such an asset and the fair value of any other asset leased by the lessor to the lessee in the period of 12 months ending at the inception of the lease of such an asset exceeds £50,000, and

• (iii) the lease provides for lease payments to be made at annual or more frequent regular intervals throughout the period of the lease such that none of those payments, other than a payment which consists of the consideration for the disposal of the asset for an amount equal to its market value (being its market value if it were not subject to any lease) at the time of disposal, is significantly greater than any of the lease payments payable before it.

405 Restriction on use of capital allowances on holiday cottages. [FA92 s25]

405.—(1) Subject to subsection (2), where on or after the 24th day of April, 1992, a person incurs capital expenditure on the acquisition or construction of a building or structure which is or is to be an industrial building or structure by virtue of being a holiday cottage within the meaning of section 268, and an allowance is to be made in respect of that expenditure under section 271 or 272—

• (a) neither section 305(1)(b) nor section 308(4) shall apply as respects that allowance, and

• (b) neither section 381 nor section 396(2) shall apply as respects the whole or part (as the case may be) of any loss which would not have arisen but for the making of that allowance.

• (2) This section shall not apply to expenditure incurred before the 6th day of April, 1993, on the acquisition or construction of a building or structure (in this subsection referred to as “the holiday cottage”) which is or is to be an industrial building or structure by virtue of being a holiday cottage within the meaning of section 268 if before the 24th day of April, 1992—

• (a) a binding contract in writing for the construction of the holiday cottage was entered into, or

• (b) (i) a binding contract in writing for the purchase or lease of land for the construction of the holiday cottage was entered into, and

• (ii) an application for planning permission for the construction of the holiday cottage was received by a planning authority.

406 Corporation tax: restriction on use of capital allowances on fixtures and fittings for furnished residential accommodation. [ITA67 s241(11)(b); FA97 s22]

406.—Where a person incurs capital expenditure of the type to which subsection (7) of section 284 applies and an allowance is to be made in respect of that expenditure under that section—

• (a) section 308(4) shall not apply as respects that allowance, and